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A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?
  • a)
    Credited to Revaluation Account at Rs. 24,000.
  • b)
    Credited to partners capital account Rs. 24,000 in profits sharing ratio.
  • c)
    Only A’s capital account credited with Rs. 12,000.
  • d)
    Only A’s capital account credited with Rs. 24,000.
Correct answer is option 'B'. Can you explain this answer?
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A, B and C were partners sharing profits and losses in the ratio of 3:...
Treatment for Goodwill:
The treatment for goodwill in this scenario would be as follows:
1. Credited to partners' capital accounts:
- Goodwill is an intangible asset that represents the reputation, customer base, and other non-physical assets of a business.
- Since A is retiring, the goodwill of the firm needs to be valued and accounted for.
- The goodwill amount of Rs. 24,000 should be credited to the remaining partners' capital accounts (B and C) in their profit-sharing ratio.
- This means that B and C will share the goodwill equally, as per their profit-sharing ratio of 2:1.
2. Credited to Revaluation Account:
- In addition to the above treatment, the goodwill amount can also be credited to the Revaluation Account.
- The Revaluation Account is used to adjust the balances of various assets, liabilities, and capital accounts when there are changes in the partnership.
- By crediting the goodwill amount to the Revaluation Account, it will be reflected in the final distribution of profits or losses among the partners.
3. Credited only to A's capital account:
- This treatment is not appropriate in this scenario because the goodwill is a joint asset of the partnership and should be shared among the remaining partners.
- Crediting only A's capital account with the full amount of Rs. 24,000 would not reflect the true nature of the partnership.
Therefore, the correct treatment for goodwill in this scenario would be option B: Credited to partners' capital accounts Rs. 24,000 in the profit-sharing ratio.
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A, B and C were partners sharing profits and losses in the ratio of 3:...
Treatment for Goodwill

The treatment for goodwill in this scenario would be to credit it to the partners' capital accounts in the profits sharing ratio. Option B is the correct answer.

Explanation:

Under the given scenario, A, B, and C are partners sharing profits and losses in the ratio of 3:2:1. Goodwill of the firm is valued at Rs. 24,000, and it is not appearing in the balance sheet. In such cases, the treatment for goodwill is as follows:

1. Goodwill Account: Goodwill is an intangible asset that represents the reputation, customer base, and other non-physical attributes of a business. It is valued in monetary terms and should be recorded in the books of accounts. However, since it is not appearing in the balance sheet, the first step is to raise a Goodwill Account by crediting it with the value of goodwill, i.e., Rs. 24,000.

2. Revaluation Account: Revaluation Account is used to record the adjustments made to the assets and liabilities of the firm when there is a change in the partnership. However, in this scenario, there is no mention of any revaluation of assets or liabilities. Hence, the option of crediting Goodwill to the Revaluation Account at Rs. 24,000 (Option A) is not applicable.

3. Partners' Capital Accounts: The final step in the treatment of goodwill is to distribute it among the partners' capital accounts. As per the profits sharing ratio of 3:2:1, the amount of Rs. 24,000 should be divided in the same ratio.

- A's capital account will be credited with Rs. (24,000 * 3/6) = Rs. 12,000
- B's capital account will be credited with Rs. (24,000 * 2/6) = Rs. 8,000
- C's capital account will be credited with Rs. (24,000 * 1/6) = Rs. 4,000

Hence, the correct treatment for goodwill in this scenario would be to credit it to the partners' capital accounts in the profits sharing ratio, as mentioned in option B.
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A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?a)Credited to Revaluation Account at Rs. 24,000.b)Credited to partners capital account Rs. 24,000 in profits sharing ratio.c)Only As capital account credited with Rs. 12,000.d)Only As capital account credited with Rs. 24,000.Correct answer is option 'B'. Can you explain this answer?
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A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?a)Credited to Revaluation Account at Rs. 24,000.b)Credited to partners capital account Rs. 24,000 in profits sharing ratio.c)Only As capital account credited with Rs. 12,000.d)Only As capital account credited with Rs. 24,000.Correct answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?a)Credited to Revaluation Account at Rs. 24,000.b)Credited to partners capital account Rs. 24,000 in profits sharing ratio.c)Only As capital account credited with Rs. 12,000.d)Only As capital account credited with Rs. 24,000.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?a)Credited to Revaluation Account at Rs. 24,000.b)Credited to partners capital account Rs. 24,000 in profits sharing ratio.c)Only As capital account credited with Rs. 12,000.d)Only As capital account credited with Rs. 24,000.Correct answer is option 'B'. Can you explain this answer?.
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